Market Based Management and Entrepreneurial Initiatives in Higher Education

By Richard Vedder

Charles Koch is a shrewd businessman, and he and his brother David are both listed amongst the 10 richest Americans by Forbes magazine. Charles has been particularly generous in funding a "market based management" approach to non-profit organizations, including universities. CCAP has benefited from his generosity.

I was reminded of this today when I saw three bits of news that imply the entrepreneurial spirit is growing in higher education, some good news to offset the bad news of continuing rising tuition fees.

First, the Carlyle Group, a major private equity player, is teaming up with Apollo Corporation (the University of Phoenix), in a $1 billion joint venture overseas. As the American for profit market becomes more crowded and enrollment growth slows, the for profits will either have to invade the mainline four year undergraduate market or seak opportunities elsewhere. This is the latest and biggest foray into international education by the American based for profit firms.

Second, 10 schools announced that they are pledging to work to develop measures of learning effectiveness -- of "value added" during the college years. The schools include some medium-sized non-prestigious not-for-profit institutions (e.g., Franklin University and the innovative Western Governors University), as well as major for profit participants (e.g., Kaplan). This is good news, and these schools are precisely the ones who will gain -- by demonstrating to the world "our students are learning something” --can they say that at Harvard, or Slippery Rock (a smaller state university in Pennsylvania)? I worked with the heads of two of the schools on the Spellings Commission, Bob Mendenhall and Jonathan Grayer, and I am delighted to see them participate in this positive effort.

Third, new statistics show that online enrollments now exceed 3 million. While many are taking on line courses as part of their conventional learning experience, it does show that colleges are well aware of the potential of this new technology. Questions still arise --what is the quality of this form of instruction? What are the cost factors -- is it saving money? But at least there is a move away from teaching the way Socrates did 2,400 years ago, and that, on balance, is probably a good thing. On-line enrollment growth is starting to slow, which is to be expected, as the torrid growth rates observed earlier are not sustainable long term. What the optimal mix of conventional and on-line learning is, I don't know, but I like the fact that this non-conventional teaching method is getting increased use.